Please read the attached files

1. Reset to base values. What crude price will cause this refinery to have a zero
margin?
This refinery will have a zero margin when the crude price is 70.25.
2. Now suppose the refiner decides to consider running different, heavier crude. The
distilled fractions from this crude (“yields”) are shown below. For this marginal
efiner to decide to switch, what is the maximum price for the heavier crude that
would cause the refiner to be indifferent between the two crudes?
When the price is $67.25, The profit margin is 0. The refinery is indifferent between the
two crudes compare to the previous one ( #1).
3. Does the heavy crude have lower or higher value from the base crude? Why?
The heavy crude has a lower price from the base crude. This is due to the higher cost
and the lower profit margin.
4. If this is the global marginal refiner, what is the crude price differential between
these two crudes?
If this is the global marginal refiner, the crude price differential is (70.25-67.25)= $3
5. Do the same analysis comparing the base crude to lighter crude, whose yields are
shown below. What is the
eak-even price that will make the refiner indifferent
etween these two crudes?
Base
Crude
Heavy
Crude
Light Ends 10 9
Gasoline 25 23
Jet Fuel & Kerosene 10 9
Diesel and Heating Oil 20 18
Residual Fuel Oil 35 41

In case of lighter crude, the
eakeven price is $73.
6. Does the lighter crude have lower or higher value than the base crude? Why?
Lighter crude have a higher value than the base crude. This is due to the lower cost and
higher price.
7. If this is the global marginal refiner, what is the crude price differential between
these two crudes?
If this is the global marginal refiner, the crude price differential between these two
crudes is $2.75.
($73- 70.25)
8. Reset to base values. Now change the gasoline price from $105/Ba
el to
$110/Ba
el. What is the crude price that creates a zero margin? Is it higher or
lower than the crude price you found in question 1?
If the gasoline price from $105/Ba
el to $110/Ba
el, the crude price is $71.50 that
creates a zero margin.
It is higher than the crude price we find in question 1.
9. Reset to base values. Now change the residual fuel price from $40/Ba
el to
$45/Ba
el. What is the zero-margin
eak-even crude price now? Based on the
esults you found in questions 8 and 9, how would you characterise the
elationship between product prices and crude prices?
The
eakeven zero margin crude price is $72.00 if we change the residual fuel price
from $40/Ba
el to $45/Ba
el. It is higher than the crude price we find in question 1
Base
Crude
Light
Crude
Light Ends 10 10
Gasoline 25 28
Jet Fuel & Kerosene 10 12
Diesel and Heating Oil 20 25
Residual Fuel Oil 35 25
Based on the results we found in questions 8 and 9, we can say that there is a direct
positive relationship between the product price and crude price.
10. Reset to base values. Now suppose the product prices change as shown in the
table below. Re-do the analysis of heavy and light crudes to determine their
elative prices. What are the crude price differentials now? How do they compare
to those you found before?
For the Heavy crude: ( with the new prices)
Zero-margin
eak-even crude price is 65.65, for heavy crude with new
price.
For the light crude: ( with the new prices)
Base
Prices
New
Prices
Light Ends $70 $70
Gasoline $105 $100
Jet Fuel & Kerosene $100 $95
Diesel and Heating Oil $80 $80
Residual Fuel Oil $40 $40
Zero-margin
eak-even crude price is 73.40, for light crude with new price
The crude price differential is (73.40-65.65) = 7.75
The price of heavy crude oil is lower than the light one. Cost is the key factor behind this
price...